Posted by Unknown
Wednesday, February 4, 2009
Currency Trading Strategy Number Fourteen :
And now for the tough part. I know my documentation says that the
forecast low and high for the next trading session can be M1/M3 or
M2/M4. However, trading is shades of gray. It is not a black and
white business. If it were, the world would be paved in gold, and
everybody would be rich. Now, we wouldn’t want that would we? The
forex would be nothing more than a Church at the end of a road
connected to a river bank at the other end with nothing in between.
The point I am trying to make is that the “actual” low and high for
the next session could very well be any combination of M1, M2, M3,
and M4. It could be M1/M4, M2/M3, or combinations of the other five
pivot points.
The M1/M3 and M2/M4 calculations are just guideposts,
but are not poured in concrete. Price is the number one indicator. It
will determine what the low and high are going to be. And one other
thing, you should use these forecasts in conjunction with the other
three “tools” in your forex trading toolkit – “reading bars,” MACD
divergence, and trendline analysis. In other words, if price has been
trending down from the past session into the current one, price is
trading at, say, M3, and price is still going down, then M3 may very
well be the high for the new session, regardless of the fact that my
system may have called for M4 to be the high. So, use the pivot
points in conjunction with other three possible signals – “reading
bars,” MACD divergence, and trendline analysis. I have seen it
happen, as in the example just given, where price was trending down
from one session to the next right through M3 at the open of the
next session – simultaneous with the formation of a “double top” bar
pattern. Well, there you have three indications that price was headed
south for sure. And, I believe MACD was also trending down in that
particular case. So, that was another clue that the high for the
session had probably already been put in.
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Currency Trading Strategy Number Eleven
That all said and done, if you entered a trade close to a pivot point,
or a particular significant bar pattern (like a double top, for instance,
or a trendline breakout), place your stop on the other side (but not
too close to) the event that caused you to take action. This is
because price has a tendency to snap back to that situation that
caused it to bolt away from it in the first place. If you follow the 20-
30 pip stop rule, but a 33 pip stop on the other side of that event
would safeguard you against such a reaction, then so much the
better. So, yes the stop rule is 20-30 pips, but within reason of
course.
Currency Trading Strategy Number Twelve
Stops (read “stop-loss”) are for insurance purposes only – not
necessarily for taking profits. However, you can most certainly
employ “trailing stops,” whereby you keep moving your stop up (or
down, whichever the case may be) to protect your profits, as price
advances, or declines.
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Currency Trading Strategy Number Nine
Again, MACD divergence on the 15 min chart is more significant than
what you see on the 1 hr chart in the near-term. For those of you
who don’t understand what divergence means, keep looking at my
own personal forex trading examples on this page on a daily basis for
examples of divergence. Basically, what it means is where you see
MACD waves “waving” in the opposite direction to price action. That’s
why I connect the top of the waves (in a downtrend) and the bottom
of the waves (in an uptrend) to illustrate that the waves are “waving”
higher in an uptrend and lower in a downtrend – in the opposite
direction to where price is going.
Currency Trading Strategy Number Ten
Always “protect” your money by using 20-30 pip stops. Mental stops
are okay, but not if you are dead serious about using a “disciplined”
approach to managing your money. You will lose three out of ten
trades. The three losses should be kept to 20-30 pips. Your wins will
by far surpass your small losses, and that’s what stop-losses are all
about. Don’t be afraid to lose. Even professional batters strike out six
out of 10 times. Lions are only successful 20% of the time in their
chase for the kill. Professional golfers lose 95% of the time.
Professional poker players lose 50% of the time. So, your chances
are better at trading the forex, using my system of course, than in
any other venue. Even businesses have “bad inventory.” And, life in
general is not always “100%” for sure.
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Currency Trading Strategy Number Five
Don’t dwell on the 5 min chart, as it contains a lot of “noise” that will
whipsaw you to death.
Currency Trading Strategy Number Six
MACD rules on the 15 min chart. Even if MACD is, say, trending up
on the 1 hr chart, if it is trending down on the 15 min chart, that’s
what you take your cue from. That’s not to say a shift in price
direction is not in the works. It just means it’s coming, but not yet.
In the meantime, you don’t want to miss what’s happening “in the
now,” which is what is reflected in the 15 min chart.
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Currency Trading Strategy Number Three
When you first start out in any particular session, look at the 1 hr
chart to get an overall perspective on trend from one session to the
next, and what it’s likely shaping up to be at the beginning of the
upcoming new session
Currency Trading Strategy Number Four
Only look at the 5 min chart if you absolutely have to see what’s
behind the current 15 min bar – especially where the bar is
elongated, and may have just penetrated a pivot point; in other
words, is price reversing course on the 5 min chart, which wouldobviously not yet be reflected on the 15 min chart?
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I. The Set-Up
After you have calculated the pivot numbers for the day, place horizontal lines on your 5-
minute and 1-hour charts at the pivot numbers for the day, or at least as many lines as
your chart gives you room for. It should look something like this:
The lines in the above illustration represent five of the nine calculated numbers. On this
five-minute chart, that was all there was room for.
The nine numbers are:
10
R2
M4
R1
M3
Pivot
M2
S2
M1
S1
There are several basic ways to trade pivot numbers. Some look for the prices to move to
the higher end, and then sell in the upper third of the scale, or buy in the lower third of
the scale of numbers (S1, M1, and S2).
However, in forex, the number of pips (points) that the currency will move in a 24-hour
period is usually substantial. This means that a move from the pivot or even the M2
number down to S2, M1, or S1 could represent 40 to 100 pips. If this is true, in
USD/CHF, that is worth between $272 to $680 per lot traded. Therefore, to ignore the
move down from this area to the projected low of the day could represent losing out on a
good opportunity.
Additionally, the currencies are the most trending markets in the world, and frequently
they do not stop if they reach these lower levels. Therefore, to look to buy at these low
points can be dangerous unless you have a clear reversal pattern in place, or some other
criteria for a reversal being met.
Others look for a break of the pivot and trade it lower or higher to the S2 or R1 numbers,
take a portion of the profit, and leave the rest anticipating a continued move to either S1
or R2. The system I use is an extension of this method of trading pivots. I will present
the method in two parts. The first application is simply trading the pivots with NO
INDICATORS. Then the second application is to utilize the MOVING AVERAGES and
MACD. In this way, you will see that the most important aspect of the system is the
relationship between price and the pivot numbers. Secondarily, and of lesser
importance, are the indicators.
The reason for this is because indicators tend to lag behind the action. If you follow
only indicators, you will frequently find yourself in “NO MAN’S LAND.” This is that
area in the middle between two points of support and resistance. The price can either
continue on to the next point or reverse and go back to where it came from. This is the
worst possible place to enter a trade, and yet that is where indicator trading often puts
you. The best place to enter a trade is as close to support or resistance as possible.
Obviously, if you are buying, you want to be sitting right on top of support and if
selling, right below resistance.
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Posted by Unknown
Sunday, February 1, 2009
Forex trading has enjoyed exponential growth and widespread popularity over the past
few years. It is only now that online foreign exchange trading is starting to get noticed. Until recently, large international banks were the big dogs in the foreign exchange (FX or forex for short) market, selectively allowing access via telephone trading to Fortune 1000 companies, large funds, high-net worth individuals, etc..
But now, there are online trading firms that provide individual traders like you and I with direct access to the largest, most liquid financial market in the world – the forex. A lot of traders seem oblivious to this market. This unfamiliarity is the root cause of misconceptions about this exciting market.
Spot foreign exchange is the ideal market for active trading - more leverage than
equities/futures/options. The market is highly volatile, has a tendency to trend strongly, and actively trades 24 hours per day. There are no limitations on when one can short a currency. Currency traders can make money when a currency is becoming stronger or weaker.
JUST ANOTHER SERENDIPITOUS MOMENT
People think that life is a linear progression, which you go from A to B to C and so on. In fact, it’s a total illusion, because anyone who thinks carefully about his/her own life knows that the pattern of his past is absolutely accidental and serendipitous. The key challenge in life is not to know where you are going, but prepare your character so when those wonderful moments of serendipity occur, you can listen to your heart and know what it is you need to do. Trading the forex is just another serendipitous moment in the course of your life. You will either embrace the opportunity or let it go. By the time you have finished reading this e-book, we believe you will not let this opportunity pass you by.
If you really wanted to learn how to trade the forex successfully, where would you go? Who would mentor you? Who would teach you? Who would show you how to take advantage of the market, instead of the other way around - the market taking advantage of you? If you could get there on your own, you'd already be there. We’re here to help you conquer the magnificent world of forex trading.
The ideal market for trading …
Tired of giving money to your broker and feeling broker? Well, outperform him or her.
Currencies don’t crash. They outperform stocks. Earn immediate income and stop
worrying about job security and layoffs forever.
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Large returns
Currencies trend well.
There are no commissions.
US$6 trillion a day and growing
The forex is a very efficient market.
High leverage: Each pip is worth US$10
There is lots of movement in this market.
You can trade 24X5 from home or anywhere.
Little capital is required – as little as US$500.
You can easily start out by taking 20 pips a day.
You can trade whether you have a day job or not.
You can hedge at FX Solutions. Not all market makers allow this.
All you need is an Internet connection; charting/dealing software is free.
This is real-time trading; 2.5 to four second response time; rare re-quotes.
Low lot size: 100 to one ratio; US$100 controls US$10,000 (1,000 = 100,000)
RISKY YOU SAY?
Is forex risky business? Comparing trading the forex to other forms of trading, you will find that from a risk/reward standpoint, forex trading provides respectable returns. THE STRAIGHT SKINNY ON THE “FX” OR FOREX MARKET The currency (foreign exchange) market is the largest and oldest financial market in the world. It is also called the foreign exchange market, or "FOREX" or "FX" market for short. It is the biggest and most liquid market in the world, and it is traded mainly through the 24 hour-a-day inter-bank currency market - the primary market for currencies. The forex market is a cash (or "spot") inter-bank market. By comparison, the currency futures market is only one per cent as big.
Foreign Exchange simply means the buying of one currency and selling another at the same time. In other words, the currency of one country is exchanged for those of another. The urrencies of the world are on a floating exchange rate, and are always traded in pairs - Euro/Dollar, Dollar/Yen, etc. In excess of 85 percent of all daily transactions involve trading of the major currencies - Australian Dollar, British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, and the U.S. Dollar.
Unlike the futures and stock markets, trading of currencies is not centralized on an exchange. Forex literally follows the sun around the world. Trading moves from major banking centres of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S.
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